Chapter 5 Business Combinations
Problems
35. On June 30, 2006, Purdom Corporation acquired 80% of the outstanding common stock
of Sudan Company. On the date of the business combination, identifiable net assets of Sudan with current fair values differing from carrying amounts were as follows:
Current Fair Values Inventories $ 60,000 Plant assets (net) 230,000 Complete the following working paper for consolidated balance sheet of Purdom
Corporation and subsidiary. Do not prepare a working paper elimination in journal entry format; however, explain the elimination on the working paper. Disregard income taxes.
PURDOM CORPORATION AND SUBSIDIARY
Working Paper for Consolidated Balance Sheet
June 30, 2006 Eliminations Purdom Sudan Increase Assets Corporation Company (Decrease) Consolidated Inventories 60,000 30,000 Other current assets 140,000 110,000 Investment in Sudan Company common stock 200,000 Plant assets (net) 220,000 160,000 Goodwill 10,000 __ ____ Total assets 630,000 300,000 Liabilities & Stockholders' Equity Current liabilities 100,000 70,000 Bonds payable 104,000 30,000 Common stock, $1 par 200,000 80,000 Additional paid-in capital 66,000 70,000 Minority interest in net assets of subsidiary Retained earnings 160,000 50,000 Total liabilities & stockholders' equity 630,000 300,000
Explanation of elimination: (a)
Larsen, Modern Advanced Accounting, Tenth Edition 77
Chapter 5 Business Combinations
Answer
PURDOM CORPORATION AND SUBSIDIARY Working Paper for Consolidated Balance Sheet
June 30, 2006 Eliminations Purdom Sudan Increase Assets Corporation Company (Decrease) Consolidated Inventories 60,000 30,000 (a) 30,000 120,000 Other current assets 140,000 110,000 250,000 Investment in Sudan Company common stock 200,000 (a)(200,000) Plant assets (net) 220,000 160,000 (a) 30,000* 410,000 Goodwill 10,000 ____ __ ________ 10,000 Total assets 630,000 300,000 (140,000) 790,000 Liabilities & Stockholders' Equity Current liabilities 100,000 70,000 170,000 Bonds payable 104,000 30,000 134,000 Common stock, $1 par 200,000 80,000 (a) (80,000) 200,000 Additional paid-in capital 66,000 70,000 (a) (70,000) 66,000 Minority interest in net assets of subsidiary (a) (60,000) 60,000 Retained earnings 160,000 50,000 (a) (50,000) 160,000 Total liabilities & stockholders' equity 630,000 300,000 (140,000) 790,000
Explanation of elimination:
(a) To eliminate intercompany investment and equity accounts of subsidiary. *{($230,000 – $160,000) – [($300,000 x 0.80) – $200,000] = $30,000}
78 Larsen, Modern Advanced Accounting, Tenth Edition
Chapter 5 Business Combinations
36. On May 31, 2006, Ping Corporation paid $300,000, including direct out-of-pocket costs
of the business combination, for 82% of the outstanding common stock of Spring Company, which became a subsidiary. Differences between current fair values and carrying amounts of identifiable net assets of Spring Company on May 31, 2006, were limited to the following: Current Fair Carrying Values Amounts Differences Inventories $ 50,000 $ 20,000 $ 30,000 Plant assets (net) 250,000 140,000 110,000
Complete the following working paper for consolidated balance sheet of Ping
Corporation and subsidiary. Do not prepare a working paper elimination in journal entry format; however, explain the elimination on the working paper. Disregard income taxes.
PING CORPORATION AND SUBSIDIARY Working Paper for Consolidated Balance Sheet
May 31, 2006 Eliminations Ping Spring Increase Assets Corporation Company (Decrease) Consolidated Inventories 80,000 20,000 Other current assets 60,000 40,000 Investment in Spring Company common stock 300,000 Plant assets (net) 460,000 140,000 Goodwill __ ____ ___ ___ Total assets 900,000 200,000 Liabilities & Stockholders' Equity Current liabilities 140,000 30,000 Long-term debt 260,000 50,000 Common stock, $1 par 100,000 40,000 Additional paid-in capital 100,000 20,000 Minority interest in net assets of subsidiary Retained earnings 300,000 60,000 Total liabilities & stockholders' equity 900,000 200,000
Explanation of elimination: (a)
Larsen, Modern Advanced Accounting, Tenth Edition 79
Chapter 5 Business Combinations
Answer:
PING CORPORATION AND SUBSIDIARY Working Paper for Consolidated Balance Sheet
May 31, 2006 Eliminations Ping Spring Increase Assets Corporation Company (Decrease) Consolidated Inventories 80,000 20,000 (a) 30,000 130,000 Other current assets 60,000 40,000 100,000 Investment in Spring Company common stock 300,000 (a) (300,000) Plant assets (net) 460,000 140,000 (a) 110,000 710,000 Goodwill __ ____ ___ ___ (a) 86,800 86,800 Total assets 900,000 200,000 (73,200) 1,026,800 Liabilities & Stockholders' Equity Current liabilities 140,000 30,000 170,000 Long-term debt 260,000 50,000 310,000 Common stock, $1 par 100,000 40,000 (a) (40,000) 100,000 Additional paid-in capital 100,000 20,000 (a) (20,000) 100,000 Minority interest in net assets of subsidiary (a) 46,800 46,800 Retained earnings 300,000 60,000 (a) (60,000) 300,000 Total liabilities & stockholders' equity 900,000 200,000 (73,200) 1,026,800
Explanation of elimination:
(a) To eliminate intercompany investment and equity accounts of subsidiary.
80 Larsen, Modern Advanced Accounting, Tenth Edition
Chapter 5 Business Combinations
37. Punt Corporation acquired a controlling interest in Saye Company for cash. The
separate balance sheet of Punt and the consolidated balance sheet immediately after the business combination were as follows: Punt
PuntCorporation Assets Corporation & Subsidiary Current Assets $130,000 $170,000 Investment in Saye Company common stock 100,000 Plant assets (net) 270,000 375,000 Goodwill _______ 7,600 Total assets $500,000 $552,600 Liabilities & Stockholders' Equity Current liabilities $ 35,000 $ 48,000 Common stock $5 par 350,000 350,000 Minority interest in net assets of subsidiary 39,600 Retained earnings 115,000 115,000 Total liabilities & stockholders' equity $500,000 $552,600
Plant assets of Saye Company were undervalued by $15,000 on the date of the business combination; the remainder of Punt's cost was assigned to goodwill. The retained earnings of Saye on the date of the business combination amounted to $37,000. a. Prepare the separate balance sheet of Saye Company on the date of the business combination.
b. What percentage of the common stock of Saye was acquired by Punt? c. Prepare the working paper elimination (in journal entry format) for Punt
Corporation and subsidiary on the date of the business combination. Answer: a.
SAYE COMPANY Balance Sheet
Date of Business Combination Assets Liabilities & Stockholders' Equity
Current assets $ 40,000 Current liabilities $ 13,000 Plant assets (net) 90,000 Common stock 80,000 _______ Retained earnings 37,000 Total assets $130,000 Total liabilities & stockholders' equity $130,000 Larsen, Modern Advanced Accounting, Tenth Edition 81